What Is The Bankruptcy “Means Test”

November 12, 2019 | By Steffens Law Office
What Is The Bankruptcy “Means Test”

If you must file bankruptcy, you'll certainly want to file under the cheapest, easiest, and quickest of the bankruptcy chapters. That would be a Chapter 7. To do so, there are really only two criteria: (1) No Chapter 7 bankruptcy filing within the previous 8 years, and (2) Income which falls under the Means Test. So, yeah, the Means Test is important.

There are really two Means Tests: a "short form," and a "long form." I know it sounds like I'm referring to "income tax returns" – and actually there are similarities.

The "short form" is merely an income limit or ceiling for the potential bankruptcy filer. These figures typically change annually and are published by the U.S. Trustees Office. Currently, the annual income limit for a single individual is $41,866. For a couple - $59,564, and for a family of 3 - $61,380. These tables provide income limits for a family of any size. The short form Means Test is pretty simple, either you fall below the income limit in the table or you don't. If you don't, then you move onto the "long form" Means Test in an attempt to claw your way into a Chapter 7.

The "long form" Means Test is really a systematic review, and calculation, of your income less certain expenses. The purpose of the test is to determine your ability ("means") to pay back some money to creditors in a Chapter 13 bankruptcy. Potentially "qualifying" deductions are subtracted from your gross income. Just like itemized deductions in a long form IRS 1040 tax return. So, there really are similarities.

So what expenses can the debtor take as deductions in the Means Test? The list is long, technical, and complicated. Really, don't try this at home. Start with the fact that not all expenses qualify all the time. Yes, it's really that complicated!

If you don't qualify for a Chapter 7 using the "short form" Means Test, consider employing an attorney who specializes in bankruptcy. For further information, contact Steffens Law Office by calling (308) 872-8327.